Crude Oil Prices Rise Amid Dwindling Inventories

Caught in a wild and gyrating market, crude oil prices briefly returned to triple-digit territory on Thursday, but gave up most of their gains to fall below $100 a barrel by the end of the day.

Crude oil futures settled at $97.88 a barrel, up 72 cents for the day, after jumping above $102 when trading opened on the New York Mercantile Exchange. The rise followed a 6.6 percent jump on Wednesday when panicky investors fled the stock market to seek shelter in the perceived safety of commodities.

After spending six months above $100, oil prices slumped earlier in the week because of concerns that the financial turmoil on Wall Street would slow economic growth and hurt oil demand. Prices fell to $91.51 a barrel on Tuesday, but since then they have made up some of their losses.

The worry in the markets now centers on efforts to restart production and refining operations on the Gulf Coast, the nation’s largest energy hub, which was battered by two powerful hurricanes in recent weeks. The disruptions forced oil companies to draw on their inventories, pushing stockpiles to their lowest levels in years.

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Petrochemical refineries in Texas City, Tex. The extent of damage to the industry in the wake of Hurricane Ike remained unclear.Credit
Pool photo by David J. Phillip

Oil inventories are now below their five-year average and gasoline stockpiles are at their lowest since 1969. Retail gasoline prices spiked in recent days but fell slightly Thursday, to about $3.84 a gallon on average, according to the automobile club AAA.

To make up for short-term disruptions in fuel supplies, the government is considering appeals to the International Energy Agency to release emergency fuel stocks. The agency, whose role is to coordinate energy policies for 27 industrialized nations, last released emergency supplies after Hurricanes Katrina and Rita in 2005. Even without government action, refiners are already exporting extra gasoline from Europe.

“There is currently more flexibility in the system, notably higher gasoline stocks in Europe and spare refining capacity,” the energy agency said in a statement. “Looking at prices and shipments, the market appears to be reallocating oil and products.”

Five days after Hurricane Ike came ashore, the extent of the damage to the industry remained unclear. The Gulf of Mexico’s oil and natural gas production remains shut down while a dozen refineries across Texas and Louisiana are trying to resume production. In contrast to 2005, relatively few of the 3,800 offshore platforms have been permanently damaged, but because it is taking time to restore power, it could take weeks for the situation to return to normal.

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Traders at work on Thursday at the New York Mercantile Exchange, where crude oil prices jumped above $102 a barrel during the day before settling below $100. Natural gas closed lower.Credit
Seth Wenig/Associated Press

Industry experts say that more than half a dozen natural gas processing plants on the Gulf Coast have been flooded or lack power. Many compressors that move gas from platforms to processing plants are in zones that remain blacked out. Natural gas fell 3.7 percent to settle at $7.621 per thousand cubic feet at the mercantile exchange on Thursday.

“The effects of the storm are the big determinants of price here,” said Michael Zenker, a natural gas expert at Barclays Capital. “The biggest reason why gas in getting whipsawed around is the market is having a difficult time figuring out when all the production is going to go back on line.”

Pressure on energy markets has been increasing in the last two days after Nigerian militants stepped up attacks on oil companies in the oil-rich Niger Delta. Nigeria’s idled production stands at a million barrels a day, according to a spokesman for the Nigerian national oil company.

The price of oil also rose as the dollar weakened to a two-week low after the Federal Reserve increased the amount of dollars available to central banks worldwide. In the last year, investors have used commodities, including oil, as a hedge against a falling dollar. The dollar slid as much as 2.6 percent to $1.4541 against the euro.

“Despite the recent declines, we believe that the commodity bull cycle is far from over as severe supply constraints that have led to high and rising prices in recent years remain intact,” Goldman Sachs analysts said in a research note.

A version of this article appears in print on , on page C8 of the New York edition with the headline: Crude Oil Prices Rise Amid Dwindling Inventories. Order Reprints|Today's Paper|Subscribe